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Reckless Contrast

Sigma Investment Counselors

July 15, 2011

Amidst the lingering cloud of uncertainty hanging over the US financial sector over just who, or whom, or what caused the financial crisis of 2008-2009, I came across intriguing material in reviews of Gretchen Morgenson’s new book, Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon. Morgenson is a well respected and prominent journalist for the New York Times.

The book apparently challenges conclusions about the causes of the financial crisis which heretofore had been laid largely at the feet of Wall Street bankers. These conclusions are undoubtedly due to the published report of The Financial Crisis Inquiry Commission, a group appointed last year by Congress and chaired by Phil Angelides (the former unsuccessful democratic nominee for Governor of California). Only reading reviews and not the book, I was led to an interesting train of thought – Morgenson uncovered a path strewn with legislative efforts by the US Congress to promote “affordable housing” by encouraging loosened bank lending standards but for which the failures thereon seemed to go (purposefully?) undetected. If the reviews are accurate, this legislation led to the eventual financial disaster. Wall Street Bankers certainly had a role, but without the actions of Congress, one might conclude that this fuse would never have even been lit.

I am baffled by the inconsistent conclusions of Morgenson versus Angelides. Both heavily discuss government sponsored entities Fannie Mae and Freddie Mac, but Morgenson just might bring to the table a clearer view on who really ‘rolled the dice’ and who relaxed standards in order to create more of an incentive to lend without any regard to means to repay.

Reckless Endangerment is on the top of my summer reading list, and it will be interesting to learn additional details of what else was uncovered during the research for the book.

Thoughts and comments welcome!

Robert M. Bilkie, Jr., CFA

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